Friday, July 28, 2006

OK I Think I Made My Point

I'm not buying your overpriced place on some silly discount. I'm buying at 2002 or earlier prices. If not from you, then from your bank when you foreclose. So keep dreaming about "soft landings." All the greater fools already bought ... the rest of us are those who could afford it, but weren't willing to mortgage our futures on crazy loans and overpricing.

In a bear market the last one in during the bull market is usually the one who loses everything. I'm talking about speculators here, people who bought with no regard to the risk they were taking.

I'm talking about developers who paid $300,000 for a 'teardown' and then put up the SUV of housing we all like to call McMansions. Now people are leaving the state because they can't afford $800,000 for a 4 bedroom colonial with no lot that looks nice from the street but faces 15 bay windows to the south. For those who don't know, south facing windows in New England mean high A/C bills in summer and higher oil bills in winter. Both of which are going up in price. (I see a lot of new wood piles in yards that never had them before. It's only a matter of time before the MassDEP outlaws wood fire home heating or requires smokestack scrubbers.)

A lot of this issue wouldn't be so much of a problem if cities and towns would grant permits to build apartment buildings with 3 bedroom units. I'm not usually a cheerleader for any soft-science Ivy League professor, especially an economist but a May '06 report The Economic Impact of Restricting Housing SupplyBy Edward L. Glaeser, Rappaport Institute for Greater Boston , Harvard University paints a clear picture of how screwed we're going to be in the coming years.

First, limits on new construction are responsible for the declines inMassachusetts’s population reported in the recent Census estimates.

He goes on to say what I've been saying (and without all that high falootin' ivy crawling up my walls) that despite the governments failure to properly assess it's cost of living index (it only counts rent not mortgage payments when calculating inflation those low numbers should really be 10 points higher for the last half decade) high prices in real estate will drive people and business out of the state. Since we make nothing that anyone would actually want to buy on the international market, eventually there will be no police, fire, nursing, janitors, waiters or plumbers who can afford to live here. That means eventually our affluence will catch up to us and bite us in the ass. Pricing the poor out of the housing market might have cleaned up Central Square in Cambridge for a while but eventually we will end up looking like Johnstown, PA where you can't give some of those formerly expensive houses away. It will be OK though, our sons might not be able to find a job but our daughters will find ample employment, while they're still young and pretty, at one of the many fine strip clubs on Route 22 toward Pittsburg. Or whatever we have on Route 1.

The thing is we have our own greed to blame for this. We want low taxes and limited government so we use creative methods to avoid spending. Instead of a slight raise in property taxes to fund good schools we restrict the new construction of 3 bedroom apartments. Why do we do that? A one bedroom apartent can be found for $500-700. A two bedroom apartment can be found for around $750 - 900 if you're not in metro Boston. That's a bout a $250 difference in the cost of the second bedroom. A three bedroom goes for $1500+. That's a mortgage payment on a house purchased prior to 2002 and almost twice the two bed prices. So let's build more three bedroom apartments. No can do. Families need more then an extra bedroom. Families imply 2.5 children coming into the school system at $8000 a piece but property tax returns on a three bedroom apartment are only about $3000. Towns lose money on three bedroom apartments full of happy families. Families are forced to buy a house so that the taxes (for our McMansion it's about $8000 a year) are paid while the children are toddling and the 30 year mortgage ensures the parents will continue to pay taxes for at least a decade after their kids graduate. Apartment dwellers can come into a town with a good school when the kids start kindergarden and leave immediately after graduation. So families in apartments are a parasite on the communities they live in. Naturally, the system favors locking families into houses long enough to recoup any losses on educational expenses.

What can be done? You can get a Condo approved for 3 bedrooms, condos have a higher tax rate then apartments. Should we raise taxes then? No not for all of us. Change the tax rate for apartments so that 3 bedroom apartments pay off. Stagger the tax rate so that the first two bedrooms cost a fortune and take advantage of all those transients in 2 bedroom units.

This may already happen anyway. Massachusetts is the most landlord infriendly state in the country. We hate renters with children but not nearly as much as we hate those who profit from their investment in properties that don't generate an assload of taxes. The jokes about to be on all of us.

There are 80 three bedroom condominiums going into a new subdivision near here. They wont sell. They'll end up apartments but taxed at the condo rate. It looks like more "typical American families" with 4.5 people will be able to rent instead of leave the state. And the developer forced to turn landlord will pay more in taxes for the rental property. Do you think the rents will be higher for condo apartments? You bet. It will give every other landlord in town an excuse to raise their rent. The Consumer Price Index will finally reflect high taxes and mortgages and we'll really see the inflation numbers take off.

Jeeze, everyone is writing a novel today. Like admittedly AG doesn't work at work because well, AG can play the corporate game well, but still! I will comment on this after I print out and read the 1200 footnotes.

Great points. I too live in the overpriced home world. I bought my home at a reduced price and I was very happy. I wasn't having this "seller's market" stuff for homes that weren't worth the price people thought they were. It also helped they had a newborn baby and just wanted to sell and get on with their lives.

I fear what's going to happen to people under these financing regs. We bought our house about fifteen years ago on a 30 year fixed, then refinanced to a 15 year fixed and paid it off early. A friend bought a house last year in the area, and asked me about his loan, and i told him to stay the F away from ARMs, because when things start sliding and mortgages start defaulting, the rates are going to go nuts.

Incidentally, I've been working on moderate priced developments in the Milwaukee area, featuring a fair number of three bedroom untis. When the budget can support the additional space.

I don't doubt other states have a much better outlook for construction of three bedroom apartments. Massachusetts has lacked the foresight on this issue for more then 20 years and that and draconian wetlands definitions have fucked us all.

Was there a puddle on your lawn for 2 hours after the last rainstorm? It's wetlands. No building or cutting down trees for 150 feet buffer zone in every direction.